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What is a credit score?

O2 Drive

What is a credit score, and how does it affect car finance?

Your credit score is a number based on your credit history, so it’s made up from information about your debts, payments and accounts. This means your credit score depends on how reliable or risky you appear, financially speaking. If you’ve got a high score, lenders will see you as low risk. If your credit score is lower, they might be more reluctant to lend you money.

Lots of people never really think about their credit score – until they try to get a car loan.

I need to take out car finance. Do I need to worry about my credit score?

There are a few different ways of financing your car purchase. One option would be taking out a personal loan with the bank. It’s not the cheapest way, but it’d mean you own the car outright. Or you could choose Hire Purchase. It’s based on monthly payments, but you won’t own the car until you pay the last instalment to the Hire Purchase company. Then there’s Personal Contract Purchase. It’s like Hire Purchase, but you’ll need to pay a lump sum at the end of the fixed term if you want to own the car.

All these finance options will need a credit check, so if you’ve seen the wheels you want, carry out your own check first. If you use an online checking service, it means you won’t get any nasty surprises once you apply for your loan. And remember – when you get your credit report, check it for any information that’s out of date.

What can affect my credit score?

If you need a car loan, you’ll have to demonstrate that you can manage credit – in other words, pay off your loan. So if you have a history of finding it hard to pay off debts, lenders will see you as a higher risk.

Never had any debt? This can actually give you a lower score. It might seem strange, but the reason is that lenders are looking for evidence that you can pay back a loan. If you’ve never had any credit, you can't give them that proof.

Can I get a higher credit score?

There are steps you can take so you can start to build a credit score. Make sure you’re on the electoral roll and have a bank account. You’ll need to demonstrate responsible credit too, which means that you can manage smaller forms of credit, like credit cards or store cards. A mobile phone account also shows responsible credit.

Need to improve your current score? It looks good if your credit accounts have been running for a long time, but make sure you close any accounts you don’t use. Other ways to improve your credit score include paying bills on time, not missing payments and trying not to max out your credit card.

Once you’ve got your loan and chosen your new wheels, make sure you download the O2 Drive app. It can keep track of your driving skills, give you hints and tips to improve, and even help you find a parking space. And with guest access, you don’t even need to be an O2 Drive customer.